Electricity Market Reform Update: Contracts For Difference Allocation Procedure

Introduction

In the past year a series of government publications and consultations have given greater clarity to the government's thinking as to how the new Contracts for Difference (CfD) regime will work. Guidance has also been issued to explain the transition to the CfD from the Renewables Obligation (RO).

To recap, the UK government department responsible for energy policy, the Department of Energy & Climate Change (DECC), is closing the RO to applicants on 31 March 2017.

Under the current position, the relevant renewable energy generators receive RO Certificates (ROCs) which, in essence, provide additional income above the price received on the market for generating electricity from renewable sources. From January next year (and continuing after closure of the RO to new applicants) these generators will instead be given the opportunity to bid for a CfD, to be entered into with a government-appointed counterparty. Under the CfD, generators will receive a